Monthly Archives: July 2014

Is real estate investment in India, especially in urban India, an excellent option for investment? Will it give large returns as expected? The data given out by NHB Residex does not confirm this.
The NHB Residex (an index constructed by National Housing Bank based on “actual transaction prices”) quotes that the index which stood at 100 for each city in 2007 has increased only by an average of 8.97 per cent (it was 178.19 on 31.3.2014) annually.

While the annual inflation rate has been quoted at an average of 9.25 per cent for each of the above years, one has to believe that there has not been any return on property investment at all. Inflation eats into the returns.

The net computation will be that the real appreciation for an investment would be at a negative 0.28 per cent for the period 2007-2014. This is a contradiction to the widely held belief that there has been appreciation in investment in real estate across the country. Contradictory to the above views, Chennai has shown an appreciation of 11% on the investments and Kochi an average of 11.5%, on investments.

The NHB data which is line with the International Monetary Fund report, compared the real estate investment appreciation for 52 countries in 2013, and has found that of the 18 countries that witnessed depreciation, India showed maximum depreciation in real terms, at about eight per cent!

The portfolio management experts at Ikia consulting services believe that, since there is no data available from years prior to 2007, the actual appreciation from earlier years might have been high. And that is the reason why people believe in investing in real estate. This also explains the reason why prices remain high in absolute terms in certain areas, especially the price of land.

Low appreciation in real estate results in more affordability and which in turn results in expansion of size of the market. This results in generating more employment and revenue for the government. The economic slowdown during 2013 has brought down financial savings of households, but on the other hand there has been considerable investment in non-financial savings, like the real estate investments. The other view is that since there is a component of black and white money in this area, the official figures may be an underestimation. Hence, experts at Ikia consulting services advise that one need to focus on the NHB data on changes in the index may be used.